Obama’s Clean Power Plan: why it’s smarter than you think (and beats EU policy)

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Cleaning ... (photo Georgie Sharp)

Cleaning … (photo Georgie Sharp)

The Clean Power Plan recently announced by the US Environmental Protection Agency (EPA) has been hailed for its good intentions, but also widely criticized for its “modest” ambitions. What most commentators have failed to note, however, is that, compared to EU climate policies, Obama’s plan is really a smart piece of legislation. It avoids the policy failures made by Brussels and lays a solid foundation for a successful low-carbon strategy.

The Clean Power Plan proposed by the Environmental Protection Agency (EPA), and strongly backed by the Obama administration, sets a carbon intensity limit on electricity production by existing power plants. The limit is set per US State, taking into account the actual energy mix of each State. Each State has to develop a Plan with measures and a timeline showing how this limit will be reached in 2030.

The reduction plans can include 4 different types of ‘ building blocks’: optimization of existing power plants, shifting power production to less carbon-intensive power production (e.g. from coal to gas) or to low- or zero-carbon generation (e.g. renewables, coal with CCS, nuclear) and reducing emissions by demand-side energy efficiency measures, reducing the total amount of generation required. Measures can also include emissions trading, such as the system that is already operational in California.

In response to the plan, many commentators have pointed out that its effects will be rather limited. Indeed, the EPA itself stresses that the plan will not have disruptive effects, but mainly reinforces existing trends. However, what most critics have missed is that the way the plan is set up, is fundamentally different from how for example the EU approaches climate policy in the energy sector. The US plan seems well thought through. It avoids policy mistakes made in Europe and could form an example for EU policy making, introducing the ‘missing link’ between CO2 emission trading, energy efficiency and renewable energy policies in Europe.

European paradox

What makes the US plan so smart? An important difference between the US and the EU in the approach taken to fight climate change is the position of renewable energy. In Europe the core of climate policy is formed by the European emissions trading system (EU-ETS), but Europe also has separate targets and policies to stimulate renewable energy and energy efficiency. These policies are not well aligned, and over-allocation of emission allowances and the inability of policymakers to adapt the trading system to changing market conditions have resulted in a paradoxical situation. Currently the production of renewable energy is growing, due to financial measures that stimulate the implementation of renewable energy. At the same time overall carbon emissions are increasing due to low carbon prices and the increased use of coal for power production. This is what Shell calls the European energy paradox.

In the approach now proposed in the US this paradox does not exist. With one unified carbon efficiency standard for each State, efforts to increase renewable energy, improve energy efficiency and expand the use of cleaner fossil fuels are combined into one policy objective. An expected outcome of this approach is that renewable energy will get a large boost in the coming years, at the expense of electricity from coal-fired power plants.

What is also commendable is that – in spite of the somewhat misleading name of the proposal, which refers only to the power sector – the focus of the plan is really on the carbon intensity of the States, rather than the intensity of individual power plants. From the point of view of the Clean Air Act, which forms the basis for this rule, this is an innovative approach. Instead of only addressing stationary sources, the rule gives States flexibility. It allows for alternative forms of electricity production (gas, nuclear, renewables), implementation of CCS (carbon capture and storage) and for measures further down the electricity value chain to comply with the required carbon intensity at State level. Especially energy efficiency measures at households and industry will in most cases be much more cost-effective, compared to measures to upgrade existing coal fired power plants through fuel switching or CCS. Through this rule, the individual US States are challenged to develop approaches (alone or in cooperation with other States) that can realise these cost-effective alternatives.

Unified approach

Another important point to note is that, although it is true that the plan’s ambitions could have been set much higher, it must not be forgotten that this is only the latest step in a series of actions from the Obama administration.  Under Obama, the United States has already issue new rules for increased fuel efficiency for vehicles and rules for new power plants, making it impossible to build a new coal-fired power plant without CCS. Moreover, it is significant that for the first time in US history carbon emissions from existing power plants are legally limited. This is an important step that cannot easily be reversed. The EPA has an obligation to act on climate change and now has acted upon this obligation (which the former president Bush chose to ignore). It creates a de facto situation that cannot easily be undone by future administrations with a different view on climate change.

As I pointed out before, the US has already set a valuable example by introducing performance standards for new power plants. This latest US proposal contains more valuable elements that are missing in EU climate policy. An overall carbon intensity standard per EU Member State (or for the EU as a whole) could form the basis for a more unified approach, linking the EU ETS, energy efficiency and renewable energy policies and avoiding the current European energy paradox.

Editor’s Note

Vincent Swinkels is an independent consultant (Vincent Swinkels Sustainable Strategy) and associate with SQ Consult. He holds a MSc degree in Industrial Design (TU Delft) and an MBA in Strategic Environmental Management (University of Amsterdam). He has worked for Van Leer, a packaging producer, for Dutch government agencies, KPMG Sustainability and DHV, an engineering consultancy. He keeps a weblog (www.vincent-energy.blogspot.com), in which he addresses links between sustainable change and economic development.

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